strategy structure environment linkage and corporate
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Strategy Structure Environment Linkage and corporate
performance: A conceptual overview.
Kennedy Ogollah
School of business-University of Nairobi
Nairobi-Kenya
email: kogollah@yahoo.com
Tel +254 722 323485
Awino Zachary Bolo, PhD.
Department of Business Administration
School of Business - University of Nairobi
Nairobi-Kenya
Email: zstra2009@gmail.com
ABSTRACT
Many researchers have over the years tried to make attempts to explain and bring
convergence on the understanding of the linkage among the variables and/or
constructs of strategy, structure and environment. They have generally concluded
that although they are closely linked their relationship remains complex and
iterative and is not as easy as theory seem to suggest. This paper tries, in light of
this complexity on the linkage among the variables existing to bring to light through
using an in-depth review of literature a step by step exploration and synthesis of the
causal relationship existent among these constructs. Out of examination of an
exponential pool of literature we identify the context of each construct, build a
relationship among each pair of variable, explore the impacts of the variables on
firm performance and eventually draw suggestions that will be able to direct future
research hoping to offer a route towards a complete and simpler understanding of
the organizations. Finally, this paper purposes to bring a familiarization to the
whole concept of configuration theory in management and strategy research by
developing a definition centrality on how the constructs of configuration are
causally connected.
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Keywords: strategy, structure, environment, configuration, structuration,
performance.
1. INTRODUCTION
Design choices about an organization’s architecture represent some of the most
powerful strategic levers available to the top management of the modern
corporation. However, we know surprisingly little about the antecedents and
consequences of those choices. It is accepted that optimal design choice is
contingent on environmental and internal fit considerations, but the precise
connections need revisiting. Most of the theoretical knowledge base in this area is
decades old, but this situation has begun to change due to conceptual and
methodological innovations in the study of organizations in recent years. Besides
this, there is an even greater need to understand how the organization architect
adapted will influence or align with the organizations strategy and based on
environmental perspective how the three will impact on the corporate performance.
Several researchers have identified lack of this understanding as the gap creating the
“missing link”. Attempts to resolve this missing linkage through empirical research
has ended up with contradictory conclusions. Hence, there is need to continue with
research endeavours, particularly in developing countries, in an attempt to obtain
concrete evidence.
1.1 Background information
For many years both researchers and practitioners have attempted to learn why some
organizations achieve higher levels of performance than others. Empirical studies
have suggested that the success of an organization seldom depends upon a single
factor but rather it largely stems from the ability to reach and maintain a viable
balance among a combination of different factors. To address this, several studies
have centered upon relationships between different variables within organizational
context and process. A small body of research indicates that success depends upon a
contingent relationship between environment and strategy. Likewise these studies
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indicate that strategist must pay close attention to structure when elaborating the
strategic plans; not to take structure into account is to condemn the firm to
inefficiency.
A mismatch between strategy and the structure will lead to inefficiency in all cases
meaning a less than optimal input/output ratio and therefore affect performance
(Chandler, 1962; Child, 1975). To date though there remains very few studies
available that have focused upon the broader issue of the joint influence of these
factors upon organizational performance. It is for this reason that researchers are
thus interested in the relationship between strategy and structure in organization.
Interestingly, despite the near universal recognition of Chandler’s insight and most
widely held view that structure follows strategy, there are studies that have also
suggested the alternative as true (Hall and Saias, 1980; Fredrickson, 1986; Russo,
1991). Importantly, they concluded that strategy, structure and environment are
closely linked although their relationship remains complex and iterative which
makes the debate continue.
A review of literature indicates that most studies have dwelt on measures of
performance in relation to individual variables or separately thus failing to
demonstrate how these variables may interact to form a strong linkage. Overall,
these unresolved issues suggest a lack of specific understanding in diverse literatures
of the fundamental linkages between strategy structure, environment and
performance, and how they interact with one another. This is the gap that needs to be
address by exploring the theoretical conceptual relationship between this constructs
while at the same time offering a critical evaluation of major aspects defining
meanings of the constructs including the social dynamics through which strategy is
shaped and the environmental dynamism. This will also necessitate modification of
the existing models which will take into account the linkage paradigm and its effects
on corporate performance.
1.2 Strategic management orientation
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Strategy as a concept is the core concept of strategic management. A clear
understanding of the term strategy is thereafter very important before one can try to
understand the concept itself. There are four orientations of strategy management in
practise according to literature. The first is that of strategy as a framework within
which decisions are made and taken. Out of the framework orientation strategy has
been viewed as a set of decision making rules for guidance of organizational
behaviour, determination of basic long term goals and objectives, adoption of action,
and allocation of resources necessary for carrying out these goals, and the planning
and coordinating of growth (Ghosal & Westney, 1993 Tregoe & Zimmerman,1980;
Robert, 1993; Treacy & Wiersema, 1993).
Another strategic management orientation proposes that purpose of strategy is to
provide directional cues to the organization that enable it to achieve its objectives
while responding to the opportunities and threats in the environment (Schendel and
Hofer 1979; Rumelt et al. 1995). The third orientation is that introduced by Quin
(1980) where he identifies strategy as the pattern or plan that integrates organization
major goals, policies and action sequences into a cohesive whole. This in line with
the works of Andrew (1971) and Thompson and Strickland (1992) and Mintzberg
(1994) who also view strategy as managerial action plan for achieving objectives.
Lastly based on the assertion that firms if not all organizations are in competition for
their survival. Porter (1996, 1998) introduced the concept of competitive strategy
where he argued that competitive strategy is about being different. Strategy is
basically about competition and the means by which an organization tries to gain
competitive advantage.
In business environment several dimensions may be associated with the term
strategy. The existence of these dimensions as seen from above definitions is an
indication of why so many tools and frameworks exist for strategy. The variety of so
many conceptual frameworks and tools in the area of strategy development cannot
be regarded as mutually exclusive but must be seen as mutually supportive. It
follows that those definitions which take a holistic approach to strategy capture its
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Strategy
meaning better than those which take isolated view. In this respect, the time which
they are defined is not a factor (Feurer and Chaharbaghi, 1995).
Figure 1.1 summarizes several dimensions and gives examples.
Source: Adapted from Feurer and Chaharbaghi (1995)
Figure 1.1 Dimensions of Strategy
Camillus (2008) describes strategy as a wicked problem which he says is not the
degree of difficulty but rather has innumerable cause, is tough to describe and
doesn’t have the right answer. He concludes that to effectively deal with wicked
issues, executives must explore and monitor the assumptions behind their strategies
bringing in the human and social aspects. This aspect is best demonstrated by Lovas
and Ghosal (2000) in their paper strategy as a guided evolution. They emphasize
incorporation of an important yet realistic role of top management in shaping the
direction and outcomes of an evolutionary process within the firm and incorporate
human and social capital as critical units of selection within the process.
Perspective
Framework
Socio-cultural
Time frame
Long term
Mid-term
Short term
Roles
Decision support
Coordinating
Communicating
Target
Process
Design/Process
Structural/Chaos Deliberate /Emergent
Centralized/Decentralized
Intended/Realized
Dynamic/ Systematic
Aspects/objectives
Determine/clarify &
Refine purpose
Preparation for future
Competitive advantage
Survival
Philosophy
Mental/model
Report/plan
General direction
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1.3 Concept of Strategy
The central concept in the field of strategic management is that of strategy and it has
continued to elude a common definition and operationalization (Hambrick, 1980). It
is generally believed that the concept of strategy has its antecedents in the military
discipline. Within its original context, it was simply understood as a military means
to a political end. However, the concept did not originate with the Greeks. The
concept of strategy in military and political context has remained prominent
throughout history and has been discussed by many scholars, numerous militarists
and political theorists (McKiernan, 2006).
The first treatise on strategy is found in the Asian history and summed up in Sun
Tzu’s classic “The Art of War” written about 500 BC (Sun Tzu, 1988). Other early
heritage of strategy can be traced from organizational theory to democratic reforms
of Kleisthenes (508 BC) in Athens and Musashi’s “Book of the Five Rings”, written
in the early 1600’s in Japan.(McKiernan, 1996). It was only through the rise of
political institutions such as Government and Churches which used other forms of
leverage such as trade and religious dogma that strategy began to widen beyond the
realms of the military.
The need for the concept of strategy in business became greater after World War II,
as business moved from a relatively stable environment into a rapidly changing and
competitive environment. One of the early writers to relate the concept of strategy to
business was Von Neumann in 1944. Later in 1947 together with Morgenstern, they
developed the “Theory of Games”. This had to do with giving rise to hope that
general theory of competitive behaviour would emerge bringing conceptual insight
into competition and collaboration/bargaining between and within firms.
Over the past 50 years, the concept of strategy has penetrated the business segments
and has been accepted as a management tool for achieving strategic targets. The
many definitions given on the concept of strategy can all be captured through
definition given by Chandler (1962) in which he emphasized the determination of
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basic long term goals and objectives, the adoption of courses of action to achieve
them, and the allocation of resources as being central to the concept of strategy.
1.4 Organization Structure
The concept of structure is usually understood to imply a configuration of activities
that is characteristically enduring and persistent; the dominant feature of
organizational structure is its patterned regularity. Yet descriptions of structure have
typically focused on very different aspects of such patterned regularity. Some have
sought to describe structure as a formal configuration of roles and procedures, the
prescribed framework of the organization. Others have described structure as the
patterned regularities and processes of interaction (Ranson, Hinings and Greenwood,
1980).
Following from the works of Weber (1946) on bureaucracy, structure can be defined
as a formal dimension of framework depicted by precise and impersonal tasks, rules
and authority relations. The explicit purpose of such formally circumscribed
frameworks remains to achieve more calculable and predictable control of
organizational performance (Meyer, 1972; Child, 1972, 1977). This forms the first
major school of thought on structure. Out of this school Ghoshal et al. (1994) :
Habib and Victor (1991) proposed a simple way of describing organizational
structure. Another popular approach is the mechanistic organic continuum of
structures. Mechanistic model implies a hierarchical, rigid structure in which power
and authority are centralized at the hands of the top management and the designers
of work processes. Organic model as structure types enjoy considerable autonomy
and have a high degree of discriminality when making certain decisions (Burns and
Stalker, 1961: Barney, 2002; David et al., 2002).
There is however the second school of thought. They break with the typical
conception of structures as a formal framework counter posed to the interactive
patterns of organizational members. Drawing upon Bourdieu (1971, 1977, 1979) and
Giddens (1976, 1977, 1979, 1984), they stress the way structures are continually
produced and recreated by members so that the structures embody and become
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constitutive of their provinces of meaning. Such an analysis must incorporate not
only relations of meaning and power but also the mediation of contingent size,
technology, and environment. The creativity of members in the face of contextual
constraint can only be assessed by setting the analysis in a temporal, historical
dimension. Other scholars who reinforce these arguments from their studies include
Nightingale and Toulouse (1977) Hall and Saias (1980)
According to Delmas and Toffel (2009) organizational architecture can be divided
into explicitly mandated formal structures (incentives, information processing
structures and authority relationships) and emergent informal structures ( culture,
social networks and communities). Later process scholars have acknowledged that
administrative procedures are contextualized by social, political and cultural factors
(Johnson, 1987; Lovas and Ghosal, 2000).The above arguments ties up with the
structuration theory’s and the famous “duality of structure”. (Giddens 1979, 1984).
Jarzabkowski (2008) concludes that top managers may draw upon existing structures
in the process of altering them, suggesting a more dynamic structurational process
which is continuous and can be either sequential or simultaneously applied.
From the works of Rice and Mitchell (1973), there is an increase in need for a hybrid
system of defining structure in research. Weick (1976) and March and Oslen (1976)
admit that although they may be loosely coupled the position and activities make
little structural sense though quite arbitrary. As such organizational structure,
therefore describes both the prescribed framework and realized configurations of
interactions and the degree to which they are mutually constituted and constituting
(Fombrun, 1986).
1.6 Environmental Context
Environmental context represents an outer environment within which or to influence
which, the elements of organizational strategy are blended. Organization theorists
emphasize that organizations must adapt to their environment if they are to remain
viable. As such a greater need to clearly identify both the components and
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dimensions of the environment and clearly define them exists. However, one of the
shortcomings of much of the theoretical and empirical research on organizational
environments has been the failure clearly to conceptualize organizational
environment or the elements comprising it (Lawrence and Lorsch, 1967; Thompson,
1967; Terrebery, 1968).
Dill (1962) in one of the earliest attempts to define the environment commented that
it is all elements not formally defined as belonging to the organization. Duncan
(1972) defined environment as the totality of physical and social factors that are
taken directly into consideration in the decision-making behavior of individuals in
organizations. This brings into play the behavioural theory of perception of
organizational members. A differentiation is made therefore between the internal
environment which consist of those relevant physical and social factors within the
boundaries of the organization or specific decisions units that are taken directly into
considerations in the decision making behavior of individuals in the system. The
external environment is the factors outside the boundaries.
Duncan (1972) is credited with the introduction of the empirical construct of
environmental perception of uncertainty, degrees of complexity and dynamic
environment where behavioural aspects of individuals differ with some having high
tolerance for ambiguity and uncertainty than others leading to perception. He
identified two dimensions of the environment, namely the simple – complex
dimension and the static – dynamic dimension. However, Downey et al. (1975)
contradicted Duncan assertions and concluded that uncertainty is an attribute of an
individual’s behavioural trait and environment rather than an attribute of the
physical environment and that physical environment attributes should not be used as
criterion for uncertainty measure. The works of both has been developed further by
Tan and Litschert (1994) who concluded that organizational environments reflect
two prominent perspectives. The first perspective is that of information uncertainty,
It indicates that as the environment becomes less munificent or more hostile, firms
are subjected to greater uncertainty.
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Finally, the environment may also be viewed as a multidimensional construct with
conceptual and empirical studies having identified several specific environmental
dimensions, which include dynamism, complexity and hostility (Dess and Beard,
1984; Child, 1972; Mintzberg, 1979; Miller and Friesen, 1978). Environmental
complexity and dynamism have been closely linked to the information uncertainty
perspective (Lawrence and Lorsch, 1967; Thompson, 1967), while hostility has been
tied to the resource dependence perspective (Aldrich, 1979). The perspectives offer a
better understanding of the impact of each environmental dimension on the
formulation of a firm's strategy. (Miles and Snow, 1978; Miller and Friesen, 1982).
1.7 Environmental Analysis
The unresolved issue among researchers on how environment can be analysed has
been a source of equivocal empirical results. Some researchers have treated the
environment as an objective fact independent of firms (Aldrich, 1979) while others
have treated the construct as perceptually determined and enacted (Weick, 1969).
The debate is enriched by reviewing some of the outstanding works from empirical
and theoretical literature available to try and draw a favourable analysis criterion.
Bourgeois (1980) while studying strategy and environment integration concluded
that the issue is not whether analysis should be objective or perceptual but rather he
suggests that both are real and relevant from a strategic management standpoint.
Objective environments are relevant to primary strategy making (domain selection),
while perceived environments are a prime input to secondary strategy making
(domain navigation). It has also been argued that perceptual analysis makes sense
since only factors that participants perceive can enter into strategy formulation
behaviour (Duncan, 1972; Lawrence and Lorsch, 1967).
Fahey and Narayan (1986) say that analysing the environment as a whole is
impossible since it is too complex and inter connected. They have proposed that the
environment be decomposed into segments. The two conceptions that are widely
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used in organization environment are the task environment and the institutional
environment. The task environment can be broadly defined as all aspects of the
environment potentially relevant to goal setting and goal attainment. Institutional
environment includes - societal, demographic, economic, political and international
elements (Scott, 1987).
The most remarkable contribution to the analysis of environmental context in
strategic management though is in the works of the strategist historicist McKiernan
(2006) who has been able to recognize, introduce and explain the influential issues
in the environmental debate. He takes recognition of both the positivist approaches
in environmental context and the interpretive approaches. Finally, Child (2000),
when theorizing about organization cross-nationality, identified both high and low
context approached, with the former occupied by economists and embracing
economic universalism and technology theory and the later occupied by socialists
embracing cultural and institutional theory.
1.8 Firm performance and its measurement
The organizational performance construct is probably the most widely used
dependent variable, in fact it is the ultimate dependent variable of interest for any
researchers concerned with just about any area of management yet it remains vague
and loosely defined (Richard et al, 2009; Rodgers and Wright, 1998). The construct
has acquired a central role as the deemed goal of the modern industrial activity.
Performance is so common in management research that its structure and definition
are rarely explicitly justified; instead, its appropriateness, in no matter what form is
unquestionably assumed (March and Sutton, 1997).
However, the definition of organizational performance is surprisingly an open
question with few studies using consistent definitions and measures (Adam and
Ebert, 1987; Kirby, 2005). Hersey and Blanchard (1998) argued that performance
has multiple meanings depending on the discipline and they have given some of the
definitions based on management scientists, marketers, accountants and economists.
Although firm performance plays a key role in strategic research, there is
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considerable debate on appropriateness of various approaches to the concept
utilization and measurement of organization performance. The complexity of
performance is perhaps the major factor contributing to the debate. Out of literature
are three common approaches to organization performance measurement namely the
objective measures of performance that tend to be quantitative, the subjective
measures that tend to be qualitative therefore judgemental and usually based on
perception of respondent, and triangulation. The objective and subjective approaches
can also be differentiated in terms of ends and means. Objective measures focus on
end results while subjective measures focus on the process or means by which ends
results are achieved (Cohen, 1993).
Lastly, there is the call for triangulation from multiple measures of
multidimensional performance construct and the application of longitudinal analysis
both of which have a marginal effect on management literature (Postma and Zwart,
2001, Richard et al., 2009, Ailawadi et al. 2004). It is critical to note that
management research on performance has been locked into three methodological
paradigms. That is sociology (survival analysis), psychology (psychometric
techniques) and economics (econometrics). This forms the foundation of the new
trends of performance measurement that is done on a triple bottom line of economic,
social and environmental assessment scale.
2. EMPIRICAL LITERATURE REVIEW
In trying to understand strategy, structure, environment linkage and corporate
performance this section takes an in-depth insight into empirical literature with an
aim of creating a clear and simpler understanding of configuration – performance
linkage. Focus is on empirical literature so as to see how first configuration is jointly
produced by organizational (strategy and structure) and environmental attributes that
are critical to a firm in any industry, and second to evaluate if configuration out of
both organizational and environmental attributes has any impact on corporate
performance.
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2.1 Strategy Structure Relationship: What shapes what?
Since Chandlers (1962) classic, the relationship between strategy and structure has
been subject of both empirical and conceptual studies with aim and intention to
show the direct or indirect link from strategy to structure. Chandler (1962) formed
the basis of the structure follows strategy paradigm which was later tested and
confirmed in Britain (Chanon, 1973), France (Pooley-Dias, 1972) and Germany
(Thanheiser, 1972). Rumelt (1974) was then able to show how the match influenced
performance. In all this cases strategy was characterized mainly in terms of breath of
markets either as diversified or undiversified. Structure on other hand was largely
according to its divisionalized or departmentalized form and nature of controls.
Firms which are able to achieve a fit between their strategy and structure can create
a significant competitive advantage, while firms that do not have a fit are left
vulnerable to external changes and internal inefficiencies. As a result, firms with a
fit between strategy and structure should perform better than those without such a
fit. Organizations face not only an “entrepreneurial” problem (which strategy to
adopt), but also an “administrative” problem (the selection of structures that are
consistent with the strategy). They argue that, over time, strategy and structure
reinforce each other: organizations choose an administrative system that is
consistent with their strategy and then find that this system continues to propel them
in the same strategic direction (Miles and Snow 1984). This is supported by
Chakravarthy (1982) who found out that organizations having different levels of
adaptation would utilize different strategies to match their structural arrangements.
Using Miles and Snow's (1978) strategy typology, Chakravarthy argued that
organizations with a high-level of adaptation would exhibit a prospector strategy and
organic structure while organizations with a low-level of adaptation would adopt a
defender strategy and a mechanistic structure.
Galan and Sanches – Bueno (2009) after reviewing 10 years data from 1993 to 2003
with context to Spanish organizations concluded that strategy leads structure and
structure leads strategy however the former is stronger than the latter. They also
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concluded that, the relationship between diversification strategy and
multidimensional structure postulated by Chandler (1962) focusing on
administrative efficiency remains applicable to today’s market only that it requires
broadening based on current circumstances. In architecture form follows function. In
business, structure follows strategy (Abbot, 2009). In essence, the company decides
what its (hopefully) unique approach to marketplace is and structures an
organization that best fits that approach. With ICT age it is not uncommon to find
one can follow the maxim of the architect Van der Rohe where “one can do more
with less’.
2.2 Strategy and Environment Linkage
A consistent characteristic of the strategy paradigm, regardless of perspective is the
assumption of a link between a firm's strategic profile and its external context
(Venkatraman and Prescott, 1990). The strategic choice perspective asserts that this
linkage has significant implications for performance (Miller and Friesen, 1983), yet
empirical evidence is inconsistent and limited to results that reflect market driven
economies.
It is further posited that the fit between environmental dimensions and strategic
orientation will lead to better organizational performance (Venkatraman and
Prescott, 1990). Consistent with this perspective, Mintzberg (1973) defines strategy
as a patterned stream of decisions, which focus on a set of resource allocations that
are employed in an attempt to reach a position consistent with a firm's environment.
The evidence supporting a relationship between the environment-strategy
coalignment and performance is compelling (Smith and Grimm, 1987; Miller and
Friesen, 1978, 1983, Miles and Snow, 1978; Venkatraman, 1990; Venkatraman and
Prescott, 1990). In particular for firms that operate in competitive environments, the
strategy literature indicates that there is a need for a distinctive strategic orientation
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in order to exploit critical environmental resources and achieve a competitive
advantage (Child, 1972; Miller and Friesen, 1983; (Luo and Yu, 1991).
2.3 Structure and Environment Linkage
Over the last decade, environmental issues have become increasingly significant to
policy makers in both the political and the business world (Avilla and Bradley,
1993; Ladd, 1994). Globally, governments are increasingly seen to be adopting
environmentally aware measures, to regulate the activity of corporations and
consumers alike. For the business community, the issue has been how seriously to
regard the need for environmentally aware strategies. The environment is
increasingly perceived to be affecting bottom line performance, and this presents a
fundamental conundrum for the business strategist. A decision is required as to the
position a company adopts in relation to the environment. This position may be
located anywhere across a continuum ranging from adopting a policy of compliance
with existing or future regulations, to attempting to adopt a management strategy
(Ghobadian et al., 1995).
Literatures on population ecology of organizations contend that the environment
selects out various common organization forms. There are only a rather limited
number of possible strategies and structures feasible in any type of environment. In
either event the repertoire of viable configurations will tend to happen relatively
quickly in short bursts and that once reached, a fairly stable set of configurations
will exist over a long period ( Karake ,1996). Organizations with too little structure
lack enough guidance to generate appropriate behaviors efficiently while
organizations with too much structure are too constrained and lack flexibility
Okhuysen and Eisenhardt, 2002; Baker and Nelson, 2005; Siggelkow, 2002; Martin
and Eisenhardt, 2000; Rindova and Kotha, 2001; Rivkin and Siggelkow, 2003;
Rowley, Behrens, and Krackhardt, 2000).
This is found coherent to structure legitimization by Pavis et al. (2009) who
elaborate that entrepreneurial organizations that have narrow structures find the
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challenge in any environment the same, they need to gain enough strength in the
structure before failure ensues. For Lowell and Rumelt (2009), in this uncertainty
businesses have to do more of what is working out and less of what is not. It is
foolhardy to think that one can see the future and design strategies for response. One
reason why results from research regarding the interrelationships between
organizational form, response to environmental change, and performance may be
mixed is that prior research has had the tendency to focus on changes between
organizational forms as opposed to also examining changes within organizational
form (Fox-Wolfgramm, Boal, and Hunt, 1998). Given that organizations can
respond to emerging environmental conditions by making changes either within
their current form or by changing to another form, the current study examines both
within-form and between-organizational-form changes (Davis, Eisenhardt and
Bingham, 2009).
3. STRATEGY STRUCTURE ENVIRONMENT AND PERFORMANCE
LINKAGE
Any research domain that contains the study of firms from a strategic management
perspective has firm strategy formulation and implementation decisions pointed out
as the key in explaining superior performance. Conceptually, this relationship is
purported to be within the paradigm that explains the effect of environment, strategy
and structure on firm performance. This leads to either the historically dominant
approach which focuses on empirical classification of organizations in order to
define inductively a set of configurations appropriate to a given context or the
deductively derived configurations which apply broadly and are not dependent on
particular industry contexts.
3.1 Configuration Approach
The concept of organizational configuration has been increasingly used in
publications on performance of companies. Although promising in this context, the
study of organizational configurations encompasses a variety of research streams
(Ketchen, 1997; Ferguson, 1999). It remains a very tempting thing to use this
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concept because it is a vehicle to describe certain characteristics or dynamics of
organizations. As a concept it is gaining high recognition in organizational research
but even more specific in strategic management “Configuration approach” or
archetypes, gestalts, consistency or fit indicates that a firm’s performance will
depend on the degree of adjustment existing between organizational context and
organization structure remembering that no single form of organization exists that is
ideal for every situation ( Donaldson, 2006; Zott and Amit, 2008). Ketchen et al.
(1997) argue that certain strategies are usually associated with some specific
organization structures in particular environments. This can be due to fact that
strategy, structure and environment have some complimentary aspects and what
really guides firm success is an appropriate adjustment between this three (Miller et
al.,2002; Snow et al.,2005).
Fiss (2008) concluded that the study of organizational configuration which he
defines as commonly occurring clusters of attributes of organizational strategies,
structure and processes forms a central pillar of both organizational research and
strategic management literature. Likewise continuing attention to configuration
theories stem from their multidimensional nature, acknowledging the complexity
and interdependent nature of organization, where fit and competitive advantage
frequently rest not on a single attribute, instead on relationship and complimentary
between multiple characteristics (Burton and Obel, 2004; Miller, 1996;
Siggelkow,2002). However, Pertusa-Ortega et al. (2009) in their study evaluating
strategy, structure, environment and firm performance in Spanish firms noted a
contradiction. To them even when both internal and external adjustments are
combined, statistical analysis indicated a contradiction to the fact that completely
adjusted firms have a better performance.
Although many studies have included one or more of these sets of variable, to date
no study has remained true to Miles and Snow’s contention that optimal
performance is a complex interaction of these factors. Also no study has taken the
Miles and Snow variables and operationalized them in a model that can test whether
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the contingencies they posit in theory hold in practice. Studies of private firms
investigated whether the effects of strategy are moderated by environment (Davies
and Walters, 2004; James and Hatten, 1994; Luo, 1999). Strategy and
Organizational structure (Jennings and Seaman, 1994; Miller and Toulouse, 1986).
Processes (Slater, Olson and Hult, 2006). Public sector works (Andrews, Boyne and
Walker, 2006; Meier, O’Toole, Boyne and Walker, 2007). Grinyer et al. (1980) in
their study analyzing the strategy, structure, environment and firm performance in
48 UK companies concluded that strategy – structure linkage is stable and positive
and fit between strategy and structure was found to be negatively correlated with
perceived environmental hostility but unrelated to financial performance. Meier et
al.(2007) while testing this in several hundreds public organization over a period of
six years indicated that at least for those organizations the contingency relationship
proposed by Miles and Snow do not hold.
Miller and Friesen (1983) summarized their findings by arguing that successful
archetypes adopted differing strategies to cope with differing environments.
Management must be able to scan and interpret the environment and make decisions
appropriate for both internal arrangement and external alignment. Lenz (1980) found
that the combination of environment, strategy, and organizational structure in high-
performance firms differed significantly from that of low- performance firms.
Similarly, Hambrick (1983) found that alternative strategies did not lead to equal
success within an industry. Thus the current literature suggests that different
strategies may have different performance implications.
Astley (1983) indicated that organizations tend to change their elements in a manner
that either extends a given configuration or moves it quickly to a new configuration
that is preserved for a long time. Piecemeal changes will often destroy the
complementary among many elements of configurations and will thus be avoided.
Only when change is absolutely necessary or extremely advantageous will
organizations be tempted to move concertedly and rapidly from one configuration to
another that is broadly different. Such changes, because they are expensive will not
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be undertaken very frequently. Consequently organizations will adhere to their
configurations for fairly long periods.
It is important to note that from above arguments, both theoretical and empirical
arguments have been deservedly influential, but more comprehensive and systematic
tests are still required. Proper testing requires incorporating the interaction and doing
so will serve to demonstrate further that the world of organizations and their
strategies do not sort itself out quite as neatly as theory seems to suggest. Results
may be mixed with hints of contingencies and complications. Sluismans (2005)
concludes that it is not only because of the increasing use of the concept of
configuration, but mainly because of this apparent usability in getting closer to the
truth as to how things in organizations happen that this concept deserves to be
explored. However even with all these, common agreement on what configurations
are and how they are used practically is still lacking.
3.2 Co-alignment Approach
Co-alignment referred to also as consistency, contingency, ‘fit’ is emerging as an
important organizing concept in organizational research (Aldrich, 1979), including
strategic management (Miles and Snow, 1978; Venkatraman and Camillus, 1984;
Venkatraman, 1990). This concept’s relevance to strategic management research
stems from a view that the strategy concept relates to the efficient alignment of
organizational resources and capabilities with environmental opportunities and
threats (Andrews, 1980; Bourgeois, 1980; Schendel and Hofer, 1979). In general,
co-alignment refers to the match between (or among) a set of theoretical dimensions.
Its role in the organizational theory literature is important from two different
perspectives. First is the descriptive perspective which specifies the existence of
relationships among a set of theoretically-related variables without any explicit
linkage to performance. Second is the normative perspective which develops an
explicit link between co-alignment and performance (Venkatraman, 1990).
20
Co-alignment, which presupposes the underlying “fit” among environmental and
organizational variables, has its roots in the design and environmental schools of
strategy and organization theory. The environmental school propounded by
Mintzberg (1973), Hannan and Freeman (1977), and Miller, Droge and Toulouse
(1988) suggests that the environment is the central actor in the strategy making
process. The organization must respond to its environments, or else be selected out.
The design school proposes a model of strategy making in which a match or fit is
sought between internal capabilities and external possibilities. The two works that
were influential in the development of this school include ‘leadership and
administration’ by Selzenick (1957) and ‘strategy and structure’ by Chandler (1962).
The development of a scheme powerful enough to compare and contrast all the
differing perspectives may be a difficult task. Nevertheless, Venkatraman and
Camillus (1984) proposed a conceptual scheme for classifying major schools of
thought. Two dimensions underlie the proposed scheme. These include the
conceptualization and the domain of fit in strategic management. Regarding the
conceptualization of fit, they argued that although strategy has been conceptualized
in different ways, one fundamental distinction underlies most conceptualizations on
whether the focus should be on the content of strategy or on the process of strategy
making. The other dimension addresses the domain of fit. They observed that
because strategic management presently serves as a meeting ground for researchers
rooted in different disciplinary orientations, the field is marked by great diversity in
concepts, terminology and methods of inquiry. Using the classical organization-
environment juxtaposition, Venkatraman and Camillus (1984) distinguished three
categories of the domain, namely: internal, external, and integrated.
From the foregoing, it is evident that the various propositions on performance
implications of environment-strategy relationship rest on the general notion of co-
alignment, which is a central anchor for strategic management research (Miles and
Snow, 1978; Venkatraman and Camillus, 1984). However, Venkatraman and
Prescott (1990) warn that its use in theory construction is limited unless considerable
21
attention is provided to link the articulation of the theoretical position with
appropriate operationalization schemes. Specifically, in researching the effects of
environment-strategy co-alignment, Venkatraman and Prescott (1990) pointed out
the emergence of two important issues. First are the problems surrounding the
conceptualization and operationalization of environments and strategy; and second,
is the development of an appropriate analytical scheme for systematically measuring
the degree of co-alignment and its impact on performance.
4. CONCEPTUAL MODEL
A conceptual model presented in figure 1.2 captures the relationships between and
among the various variables underpinning the linkage of strategy, structure,
environment and performance as discussed in the foregoing sections of the literature
review. The conceptual framework suggests interrelationships between and among
key variables in this study viz: strategy, structure, environment and performance.
The intervening/moderating factors which are likely to influence the interpretation
process are of behavioural, cultural and institutional theory perspectives which are
environment in context.
Figure 1.2 Conceptual Model
Firm
Strategy
Firm
Organization
Structure
Firm
Environment
Firm
Corporate
Performance
20
5. SUMMARY OF EMPIRICAL LITERATURE REVIEW AND KNOWLEDGE GAPS
Table 1: Summary of Empirical Literature and Knowledge Gaps
Year &
Journal
Author and journal title Variables Findings Gaps/Remarks
1980 -SMJ Lenz, R.T.
Environment, Strategy Organization structure and
performance: patterns in one
industry
Strategy: Resource allocation &
policies
Organization Structure: differentiation, integration.
Environment: Complexity, Uncertainty.
Performance: (ROA)
Performance stems from
relationship among many different factors.
Neither environment, strategy,
structure acting alone is sufficient to explain difference in
performance
Looked at only a single hypothesis .
Need to assess side by side firms from different
industries.
Need to study the strategic choices as determined
by population served.
1980 - AMJ Grinyer, P.H., Yasai-Ardekani,
M. & Al-Bazzas, S. Strategy, Structure, the
Environment and Financial
Performance in 48 United Kingdom Companies
Strategy: Span of Control
Structure: Divisionalization Environment: pressure/hostility
(Perceived)
Performance: ROI (Profits)
Confirmed positive relationship
between strategy and structure and independent of other correlates of
structure .
No match of strategy/structure and performance
Methodology gap was noted as they could not
get ROI data on the subsidiaries.
Gap: Study concentrated on the match of strategy
and structure and the impact on performance while ignoring the linkage.
1987 – AMJ Miller, D.
Strategy making and Structure: Analysis and Implications on
performance
Strategy (Making): Rationality,
Assertiveness and interaction.
Structure: formalization, centralization, Complexity,
integration
Performance; Profitability, growth in income ROI
Reinforced findings that
emphasized configuration or
gestalts. Aspects of strategy, structure,
environment configure to form
integrated whole with crucial impact on performance.
Concentrated on individual match of strategy
and structure and its impact on performance.
Failed to test if strategy making behaviour
moderate that relationship and it environment
will influence strategy making behaviour
1991 - SMJ Habib, M.M. & Victor, B.
Strategy, Structure and Performance of US
Manufacturing and Service
MNCs: A Comparative Analysis
Strategy: product/ service
diversity, extent of foreign
involvement. Structure: Types
(function/product or services)
Geographic: international/ regional Performance: economic (ROA),
Accounting measures.
Supported the strategy-structure fit.
Provide empirical evidence effect of matrix structure.
ROA does not capture the fit of strategy -
structure fit.
Ignored contextual, environment and market
variable like technology, market concentration.
21
1994-SMJ Jennings, D, F. & Seaman, S.L.
High and Low Levels of
Organizational Adaptation: an
Empirical Analysis of Strategy,
Structure and Performance
Strategy: prospector, defender
Structure: Mechanistic/Organic
Performance: Value, profitability
and risk
Provide empirical evidence
regarding impact of strategy/ structure alignment on performance.
Introduced concept of equifinality
Concentrated on adaptation impacts ignoring
strategy/structure match becomes optimal. Failed to determine the factors that are driving
force behind an organizations adaptation by
examining manner in which managers scan their
environment.
2007-
conference
paper at
Tucson AZ (USA)
Meier, K.J., O’ Toole Jr., J.L.,
Boyne, G.A, Walker, R.M &
Andrews, R.
Alignment and Results: Testing the interaction Effects of Strategy,
Structure and Environment from
Miles and Snow
Strategy: Defenders, Prospectus,
Reactors & Analyzers
Structure: Organic/ Mechanistic
Environment: Turbulence munificence
Performance: pass rate of
students
Found mixed feedback on how the
three strategies impact on
environment.
Impact on performance governed by how structure and environment are
aligned and how strategy is
employed thereafter.
Study omitted organizational process in testing
alignment and only used the four variables.
Study omitted test for centrality of organization
goal. Study failed to test for contingencies and
complications in the individual interactions.
2008-
Conference
paper at 24th
EGOS colloquium
in
Amsterdam.
Fiss, P.C
Configuration of Strategy,
Structure and Environment: A Fuzzy Set Analysis of High
Technology Firms.
Strategy: Cost leadership,
Differentiation.
Structure: Formalization,
Centralization, Administrative Complexity, Size.
Environment: Rate of change,
uncertainty. Performance: ROA (pre-tax
profit)
Demonstrated existence of several
equifinal configurations around
grouped samples.
Found that pure systems of strategy
gave high performance as opposed
to hybrid types.
Focused on some measures while excluding
others like operationalization of environmental
characteristics.
Study was on high technology sector only. There
is need for cross-industry data.
2008- EuroMed
Journal of
Business
Pertusa – Ortega, E.M., Claver-Cortes, E. & Molina-Azorin, J.F.
Strategy, Structure, Environment
and Performance in Spanish
Firms.
Strategy: Cost leadership, Innovation, Differentiation.
Structure: Organic models/
mechanistic Environment: Uncertainty,
Dynamism
Performance: ROA, ROS, ROE
Traditional theoretical models are not exactly applicable in context of
European- Mediterranean SME’s.
Cost leadership is not associated with a favourable environment.
Innovation differentiation strategy
is not associated with organic structures.
The relationship between
adjustment and performance is
partially confirmed.
Methodological: Used opinion scale which is limiting due to subjective character.
Study ignored hybrid organizational forms and other organizational dimensions such as
planning, control systems, processes, information
and communication flows, and organization culture.
22
2009 -
unpublished PhD
Chiyoge B. S.
Influence of Core – Competencies
on the Relationship between Co-
Alignment Variables and
Performance of Profit – oriented Parastatals in Kenya
Strategy: Defenders, Prospectors,
Analyzers and Reactors Structure: Formalization,
Centralization, Specialization,
Standardization of procedures/
methods/ employment practices Environment: Defined along
Porters 5 forces model.
Performance: ROA (Profitability Ration), Growth in Sales.
Found weak relationship between
environment and structure, and environment and strategy.
Core-Competencies moderated
relationship between Co-alignment variables and firm performance.
Operationalization of performance was limited to
ROA. There is need to test other measures of performance.
Study concentrated on Government parastatals
which tend to have highly regulated environments, structures and controlled
strategies. There is need to test the relationship in
more flexible organizations.
The studies reviewed above presented mixed findings regarding the relationship between variables of strategy, structure, environment and firm
performance. While a number of them found a positive relationship between the variables and performance, others found the opposite. One
possible explanation for this situation could be the variety of methodologies and definitions of variables. Another explanation could be the study
contextual factors that were not captured by the models employed. Most of these studies were carried out in different countries and different
managerial regimes.
The studies reviewed also seem to examine the direct relationship between the individual variables or specific set of the variables and
performance. As such they have overlooked testing the variable interactions, their relations and causal linkage of all of them and consequently
the joint impacts on firm performance. As such critical organizational context and implementation issues are ignored. Lastly the studies
reviewed have reflected weaknesses in variable definitions and operationalization. Besides limited statistical analysis and ignoring of human
elemental factors.
23
6. CONCLUSION
The theoretical framework for strategy, structure and environment that has been tested in the
past is today under serious scrutiny. Managers are leading more through uncertainty than ever
before. Even governments have been drawn back to pay special attention and even bail out
businesses. The magnitude of this era will be realized when the fog has faded and new nexus
for strategy structure alignment is being sought. The resultant demand is to build flexibility
into the strategy process, with a portfolio of initiatives from which best choices shall be made
adaptable to the new environment pattern. Firms which are able to achieve a fit between their
strategy and structure can create a significant competitive advantage, while firms that do not
have a fit are left vulnerable to external changes and internal inefficiencies. Thus under the
global economic crisis, the fit between these constructs is likely to be the key focus scholars
and practitioners.
Despite this logical explanation empirical results have been mixed. Some researchers have
found support for the configurations–performance relationship others report no connection.
This equivocality has created concern about the appropriateness of future inquiry. Indeed, in
reference to the most prominent approach to configurations strategic groups it has been
suggested that it may be necessary to abandon this concept and redirect attention toward other
potential determinants of performance. Before research on configurations and performance is
abandoned, plausible alternative explanations for the lack of findings should be examined.
The role of statistical power in extant research provides one such alternative. Statistical
power is, in essence, the probability that an empirical test will detect a relationship when a
relationship, in fact, exists.
Specific longitudinal empirical studies in small and medium enterprises more especially in
emerging economies is recommended to assess the strategy-structure-environment
configurations that have been experienced in the changing environment over the economic
crisis period being experienced and also provide the linkage to context and the measures.
This will be expected to be a significant contribution in knowledge in this area as no other
study seems to have considered this holistic approach. Specific recommendation is to test the
configuration linkages raised above by examining empirically the situation of SMEs in Kenya
which is not only a non-western context but also a country where studies on small and
medium enterprises have been globally acknowledged (ILO 1971, Parker and Torres, 1995).
24
Acknowledgement
I wish to acknowledge the support of Dr. Martin Ogutu senior lecturer, School of business,
University of Nairobi who was able to moderate the paper during the oral presentation of the
same. I also wish to acknowledge the support of my colleagues in the PhD programme of the
University of Nairobi especially, Anne Muchemi who tirelessly worked with me as I
developed the paper and was there to offer critique. To my family for understanding the
sleepless nights I had to spend I remain indebted.
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